Homebuilders are raking it in because it's more expensive for you to buy a house

After ostensibly triggering the worst financial crisis in
history, it has healed to become one of the fastest-growing
components of the US economy.

But housing supply has not kept up with demand, especially in the
end of the market that's within the affordable reach of many
first-time homebuyers. This has triggered a surge in home prices
that has worsened affordability.

This is not great news for many homebuyers, but it is for
builders like PulteGroup, America's fourth-largest homebuilder by
market cap.

During the company's first-quarter earnings call on Thursday, CEO
Richard Dugas perfectly captured the biggest themes in the
housing market right now.

He said:

We have communicated that 2016 would be an inflection year with
increasing volume being delivered through a much more efficient
homebuilding operation. The combination of rising unit
volumes, increasing average sales prices and a more efficient
homebuilding machine can translate into significant earnings
growth. Add in the benefit of consistently returning
funds to shareholders and you have a business that can return
high returns for its investors over time.

As Bob will detail in a moment the business is
beginning to turn in that direction with sign-ups increasing by
10% to almost 5,700 homes, closing volumes gaining 17% to almost
4,000 closings, average selling prices expanding by 9% to
$353,000 and our backlog value climbing 31% to $3.4
billion. These metrics obviously resulted in strong the
quarterly performance in the first quarter but equally important
they position the company to deliver continued growth over the
balance of 2016.

The big annotation is that PulteGroup is counting on rising
home prices and more efficient homebuilding to drive its earnings
growth higher. And its results show that it is already seeing
some of that, with a 52% jump in profits year-on-year that topped
estimates.

When Lennar
reported its results in late March, we noted that CEO
Stuart Miller said the company believes that the trifecta of
tight inventory, low interest rates, and low unemployment would
continue. This would be the perfect scenario to keep supply low,
demand high, prices high, and homebuilders very profitable.

Robert Dietz, chief economist at the National Association of
Home Builders, shared his frustration about low inventories with
Business Insider. Specifically, Dietz spoke about how the
realtor community thinks the solution to the inventory
shortage simply lies with homebuilders constructing more.
Realtors, of course, stand to gain when there are lots of homes
they can help to sell.

But a number of constraints, from regulations to lot costs
and financing, are part of what's constraining
homebuilding.

And so PulteGroup would do well to, like it says, be a more
efficient homebuilding machine.